Govt moves to empower RoC, but will it lead to demand for more manpower?

Govt recently brought in an Ordinance to amend Companies Act, 2013, with the objective of de-clogging the NCLT and empowering the Registrar of Companies and regional directors with additional powers

The government’s recent move to strike a balance between improving judicial efficiency and the steps taken to enhance compliance and disclosures by companies has put the spotlight on the Registrar of Companies (RoCs).

The primary role of the RoCs has been to register companies and limited liability firms and ensure that these businesses comply with the statutory requirements under the Company Law.

Based on the recommendation of an expert committee set up by the Ministry of Corporate Affairs (MCA), the Ordinance delegated some of the powers of the NCLT to the RoCs or regional directors (RDs). They would now deal with matters related to change of financial year, conversion of a public limited company to a private limited company and vice versa, and power to rectify the register of charges, among others. The RoCs may soon administer all mergers and acquisitions cases involving companies, taking a huge workload off the courts.

“Once the rules are framed, RDs and the RoCs will only have to work according to the written guidelines for levying penalty on companies,” said a senior official from the MCA. The rules will state how much penalty should be levied for any corresponding delay in meeting a compliance requirement. The notices to the company on default will be issued online and filed electronically. However, the appellate authority against any order by an RoC or an RD will be the NCLT.

According to the government’s assessment, 40 per cent cases in the NCLT are of companies not filing their annual reports and other requisite regulatory filings. Currently, there are 6,000 company law cases and around 4,000 insolvency and bankruptcy cases pending with various benches of the NCLT, officials indicated. The move will help the NCLT focus on insolvency- and corporate debt-related cases, officials added.

So, will the move to empower RDs and the RoCs and the extra workload lead to additional demand for administrative manpower in these bodies? Officials in the MCA in Delhi do not think so. Arguing that the additional functions delegated to the RoCs are administrative in nature, senior government officials felt manpower will not be an issue. Till the time the rules are framed, the NCLT will continue to deal with existing cases.

Ahmedabad

Young accounting professionals, in mostly black and white formals, have been doing the rounds at the RoC office in the north-western part of Ahmedabad. The otherwise quiet two-storey building has been buzzing with activity of late. The back-to-back interviews conducted by senior MCA officials assume importance in light of the recently promulgated Ordinance. Sources said the interviews were being conducted to hire professionals on contract in anticipation of an increased workload at the RoC.

With many vacant positions at the RoC, the workload is substantial for 25 staffers. “With regulatory tasks and functions rising, the workload is increasing every day,” an official said.

Over the years, a large number of compliances having been digitised and are handled electronically, still piles of official files are doing the rounds between offices of the regional director, the RoC, the deputy ROC and the assistant ROC.

Around 80,000 companies are registered with the RoC in Gujarat, according to industry executives and officials.

Local industry players and professionals are, however, divided over the impact of this move to empower the RoCs. While some welcome the step in the hope that the ROC will garner more teeth and help companies escape the stigma of being dragged to the NCLT, others are apprehensive about growing red-tapism.

“Once you get an NCLT case, the reputation of the company takes a hit. But if the RoC is investigating, then it becomes a routine query,” noted Sunil Parekh, a senior industry advisor.

Yamal Vyas, past president of the Institute of Chartered Accountants of India,  Ahmedabad chapter, is of the view that empowering the RoC could lead to malpractices. However, if the processes are managed electronically, with minimal human intervention, such concerns are minimised, he added.

Mumbai

Both bureaucracy and industry players in the business capital appear gung-ho on the move to empower the RoCs and RDs with additional adjudicating powers.

Officials at the Mumbai RoC expect that around 90 per cent of the cases filed by the MCA before the NCLT will get transferred to the regional directors. They also expect the changes to improve the level of statutory compliance by companies. The compliance rate in the Western Zone stands between 70-80 per cent, officials indicated. These changes will improve the process for the remaining non-complying companies, they added.

Explaining how the move will help cut regulatory red-tape, a senior official from Mumbai RoC noted that offending companies will come straight to the RoC for compoundable offences, instead of doing the rounds of courts.

However, discussions are underway regarding the design and implementation of the e-adjudication system, officials said. According to Sanjay Shorey, director of legal prosecution at the MCA, the Ordinance will reduce litigation and prosecution. “A major part of prosecution against companies today is for the non-filing of annual returns,” he said. This will free up a lot of the workload of the MCA’s prosecution team, he added.

S N Ananthasubramanian, a company secretary and former president of the Institute of Company Secretaries of India, said: “This is a change for the better, given the emphasis on ease of doing business and the crackdown on shell companies.” 

Kolkata

The RoC in Kolkata is bracing to hear and adjudicate around 200 cases every month from the current average of five per month. The office has three floors and 60 staffers, but only one prosecutor and a small legal team. It may struggle to handle such a large number of cases every month. 

Backed by solid digital infrastructure, the RoC still needs to hire contractual manpower for back-office and related work, officials said.

Officials said shell companies will now face difficulties to operate out of this RoC. The amendment empowers the registrar to verify in person the physical existence and infrastructure of companies in question.

At this RoC, around 80 per cent of the cases pertain to compliance lapses on the company’s annual balance sheet and related transgressions. Out of 1.2 million companies registered with various RoCs in the country, the Kolkata RoC has 0.21 million registered companies, of which 0.13 million are active companies. Sources in the RoC suggested that as a result of higher penalty provisions in the Ordinance, collections from the Kolkata RoC may increase 4-10 times every year.

Chennai

The Chennai RoC, with the responsibility for 23 districts in Tamil Nadu, has a total of around 35 staff, including outsourced workers. This includes five officers, including the registrar.

Government data shows there are 1,36,369 companies in Tamil Nadu. The number of total active non-government companies (both public and private) in Tamil Nadu was 64,902, according to a 2015-government report.

Officials at the RoC appear confident that they will be able to handle the additional workload. While most officials agree the recruitment process needs to be beefed up, they said the existing staffers are well qualified to handle probe.

However, some industry experts are not sure how the administrative machinery will take to the quasi-judicial functions. “When penalty is involved, it is always best to leave the adjudication, or at least the appellate process, to a quasi-judicial authority. Adjudication of penalty by the same authority which initiates the notice may not serve the purpose,” said K Vaitheeswaran, a Chennai-based advocate and tax consultant.

Some senior executives from large and small companies felt that as the RoC know the entire details of a company in a region, they are well placed to take a call on penalties.

Putting the recent changes empowering the RoCs and RDs in perspective, a company secretary of a large Tamil Nadu-based business house said: “Whatever they have done is in line with the 1956 Act. The 2013 Act took away those powers and gave it to the NCLT.”

Key changes in the Companies Act

• New functions to come under the ambit of RDs/RoCs:

• Change of financial year

• Conversion of public limited company to private limited company and vice versa

• Power to rectify the register of charges

• The pecuniary jurisdiction of the RDs for compoundable offences has been increased from Rs 500,000 to Rs 25,00,000

• Re-categorisation of certain offences — certain technical defaults, or procedural lapses, are treated as civil liabilities and attract financial penalties:

• Failure to file Annual Return within 60 days of AGM

• Failure to annex statement of 'material facts' to notice of general meeting

• Not filing shareholder resolutions with registrar

• Not filing report on AGM by listed companies

• Not filing financial statement with registrar

• Failure by director to comply with DIN requirements

• Non-compliance of KMP provisions

• Penalty for repeated default